Question 1

Net income results when

Accepted Answer

Net income results when revenues (income earned) are greater than expenses (costs incurred). Therefore, the correct option is C, where revenues are greater than expenses.

Question 2

The company's policy toward dividends and growth could best be determined by examining the

Accepted Answer

The retained earnings statement shows the amount of earnings that has been retained by the company to be reinvested in the business or paid out as dividends. By examining this statement, one can determine the company's policy towards dividends and growth. If the company has a high retained earnings balance and tends to reinvest earnings back into the business, this indicates a focus on growth rather than paying out dividends. Conversely, if the company has a low retained earnings balance and regularly pays out a significant portion of earnings as dividends, this indicates a focus on providing returns to shareholders rather than reinvesting in growth.

Question 3

Net income will result during a time period when

Accepted Answer

Net income is a measure of profitability and is calculated as revenues minus expenses. Therefore, net income will result during a time period when revenues exceed expenses.

Question 4

An income statement

Accepted Answer

An income statement presents the revenues and expenses for a specific period of time. Option A refers to a statement of retained earnings. Option B refers to a statement of cash flows. Option C refers to a balance sheet.

Question 5

Dividends are reported on the

Accepted Answer

Dividends are distributed to shareholders out of a company's retained earnings, therefore they are reported on the retained earnings statement, which shows the changes in retained earnings for a period of time. They are not reported on the income statement, as they are not considered an expense, and they do not impact the balance sheet directly, as they are not an asset or liability.

Question 6

Which of the following financial statements is concerned with the company at a point in time?

Accepted Answer

The balance sheet provides a snapshot of the company's financial position at a specific point in time, including its assets, liabilities, and equity. The income statement, retained earnings statement, and statement of cash flows all show financial information over a period of time.

Question 7

An income statement shows

Accepted Answer

An income statement shows the revenues earned by a company, the expenses incurred in generating those revenues, and the resulting net income or loss. It does not typically include information about liabilities, dividends, or stockholders' equity.

Question 8

Dividends paid

Accepted Answer

Dividends paid are distributions of earnings to shareholders and therefore reduce the amount of retained earnings, which is a component of shareholders' equity.

Question 9

Henson Company began the year with retained earnings of $330,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year?

Accepted Answer

Retained earnings = Beginning retained earnings + Net income - DividendsNet income = Revenues - ExpensesNet income = $500,000 - $380,000 = $120,000Retained earnings = $330,000 + $120,000 - $40,000 = $410,000

Question 10

Finney Company began the year by issuing $40,000 of common stock for cash. The company recorded revenues of $370,000, expenses of $320,000, and paid dividends of $20,000. What was Finney's net income for the year?

Accepted Answer

The answer of Finney Company began the year by issuing...

Question 11

Retained earnings at the end of the period is equal to

Accepted Answer

Retained earnings at the end of the period is equal to the beginning retained earnings plus net income minus dividends. This is because any net income earned is added to the beginning retained earnings, and any dividends paid out to shareholders are subtracted from this amount. Therefore, choice B, "retained earnings at the beginning of the period plus net income minus dividends" is the correct answer.

Question 12

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
...

Question 13

In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement?

Accepted Answer

Dividends are not expenses; they are distributions of profits to shareholders and are shown on the retained earnings statement, not the income statement.

Question 14

The retained earnings statement would not show

Accepted Answer

The retained earnings statement shows the beginning balance of retained earnings, adjustments for any net income/loss, dividends paid, and the ending balance of retained earnings. Revenues and expenses are reported on the income statement, not on the retained earnings statement.

Question 15

To show how successfully your business performed during a period of time, you would report its revenues and expenses in the

Accepted Answer

The income statement (also known as profit and loss statement) is used to report the revenues and expenses of a business during a specific period of time, usually a month, quarter, or year. This statement shows whether the business made a profit or loss during the period, by subtracting the expenses from the revenues. It is a useful tool for evaluating the profitability and financial health of a business, as well as for making decisions about investments, pricing, and cost management. The other financial statements are also important, but serve different purposes. The balance sheet shows a snapshot of the company's assets, liabilities, and equity at a given point in time. The statement of cash flows describes the sources and uses of cash during the period. The retained earnings statement shows the changes in the company's earnings that were retained in the business rather than distributed to the shareholders as dividends.

Question 16

If the retained earnings account decreases from the beginning of the year to the end of the year, then

Accepted Answer

Retained earnings is the portion of a company's net income that is not paid out as dividends but is instead kept for reinvestment or other uses. If retained earnings decrease from the beginning of the year to the end of the year, it means that more dividends were paid out than the net income earned for that year. Therefore, net income is less than dividends, making option A the correct answer.

Question 17

Which financial statement is prepared first?

Accepted Answer

The income statement is generally prepared first as it shows a company's revenues and expenses for a specific period, usually for a quarter or a year. It is an essential statement to determine the net income or loss of the company during the period. The other financial statements, such as the balance sheet and cash flow statement, rely on information provided by the income statement.

Question 18

If the retained earnings account increases from the beginning of the year to the end of the year, then

Accepted Answer

Retained earnings represent the earnings of a company that have been reinvested back into the business rather than paid out as dividends to shareholders. If the retained earnings account increases from the beginning of the year to the end of the year, it means that the company made more net income than the dividends it paid out to shareholders. Therefore, the correct choice is D - net income is greater than dividends.

Question 19

The financial statement that summarizes the changes in retained earnings for a specific period of time is the

Accepted Answer

The retained earnings statement summarizes the changes in retained earnings, including net income or loss, dividends paid, and any prior period adjustments. The balance sheet shows the company's assets, liabilities, and equity at a specific point in time. The income statement shows revenues and expenses for a specific period of time. The statement of cash flows summarizes the company's cash inflows and outflows for a specific period of time.

Question 20

Pinson Company began the year with retained earnings of $570,000. During the year, the company recorded revenues of $600,000, expenses of $380,000, and paid dividends of $140,000. What was Pinson's retained earnings at the end of the year?

Accepted Answer

To calculate the retained earnings at the end of the year, start with the beginning retained earnings of $570,000, add the net income (revenues of $600,000 minus expenses of $380,000, which equals $220,000), and subtract the dividends paid ($140,000). This results in $570,000 + $220,000 - $140,000 = $650,000.

Quiz 1: Introduction to Financial Statements